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Estée Lauder’s Global Strategy

China and Brazil are essential markets for the company.

With 60 percent of its beauty sales done outside North America — 150 countries and territories at last count — The Estée Lauder Cos. Inc. places a strong emphasis on international business. So what keeps the man responsible for overseeing those markets up at night?

“China keeps me up at night,” admitted Cedric Prouvé, group president, international, for The Estée Lauder Cos. Inc. “There are a number of challenges to succeeding in China, but succeeding in China is succeeding globally.” That is not only due to purchases within the country itself, but sales to Chinese consumers in other markets like France, Italy, the U.S. and the U.K.

Prouvé noted that China is an essential market for the company — as for many others — and grew 33 percent in fiscal 2011; Hong Kong grew 22 percent in the same period. “China represents about 4 percent of our overall business, but has contributed 10 percent of our overall growth,” he said, adding that Lauder began focusing heavily on China about 10 years ago. The company distributes 11 brands in China, and those that do best are luxury brands, especially the Estée Lauder brand, Prouvé said. The typical Chinese consumer is “smart, demanding, prefers skin care, which accounts for over 70 percent of our business in China — and uses a complex beauty routine, often as many as seven products, morning and night,” he said.

A successful strategy was to invest a significant amount — “more than we spend in the U.S.,” Prouvé said — in TV advertising, to raise brand awareness. “The more awareness we raise, the more business we will generate,” he said.

Key challenges include acquiring and retaining talent — “probably my number-one concern,” he said. Regulatory matters are another challenge, with the current onerous process for approving the use of new-to-China ingredients in products sold there.

In addition to China, Brazil is a key market for the company and has grown 25 percent in the last year. “Brazil has been a very protected and tricky market, but things are changing,” he said, noting that Lauder entered the country about five years ago. Then and now, Brazilian duties make imported cosmetics out of the price range of many in that country (for instance, a product could be triple the price of what it retails for in the U.S., he said.) As well, Prouvé said, the beauty market is mostly mass and direct-sell. “We need to drive them from mass to prestige,” he said, noting that Brazil is the second- or third-largest beauty country overall in consumption, depending on who you talk to.

Lauder has, in many cases, opened its own stores in Brazil, said Prouvé. E-commerce is another huge opportunity for Lauder in Brazil, he said.

Russia is growing “high double digits,” said Prouvé, and the Middle East, Vietnam, South America and Turkey are also becoming strong players, he said. “I believe Africa also represents a strong opportunity as well,” said Prouvé. India “will take a little more time…MAC is a very strong business in India and we’ve also launched Clinique. It’s not big, but it’s not a drain and we are there for the long term.”